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Cablegate: Royal Court Chief and Pm Discuss Iran, Economy

VZCZCXRO9542
RR RUEHROV
DE RUEHAM #0872/01 0791746
ZNY SSSSS ZZH
R 191746Z MAR 08
FM AMEMBASSY AMMAN
TO RUEHLMC/MILLENNIUM CHALLENGE CORP
RUEHC/SECSTATE WASHDC 2106
INFO RUEHXK/ARAB ISRAELI COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC

ROYAL COURT CHIEF AND PM DISCUSS IRAN, ECONOMY, AND POLITICAL REFORM WITH STAFFDEL
Class: SECRET//NOFORN
Date: Wed Mar 19 17:46:00 2008
Key: 08AMMAN872
Tags: PGOV, EFIN, KWBG, ECON, IR, IS, JO


S E C R E T SECTION 01 OF 02 AMMAN 000872

SIPDIS

NOFORN
SIPDIS

E.O. 12958: DECL: 03/19/2018
TAGS: PGOV EFIN KWBG ECON IR IS JO
SUBJECT: ROYAL COURT CHIEF AND PM DISCUSS IRAN, ECONOMY,
AND POLITICAL REFORM WITH STAFFDEL

REF: A. AMMAN 869
B. 07 AMMAN 4885
C. AMMAN 535

AMMAN 00000872 001.2 OF 002


Classified By: Ambassador David Hale
for reasons 1.4 (b) and (d).

1. (C) Summary: In separate meetings with a visiting Senate
staffdel (whose trip was arranged by the Jordanian MFA),
Royal Court Chief Bassem Awadallah and Prime Minister Nader
Al-Dahabi addressed Jordan's place in the regional political
order, political reform, and economic issues. Awadallah
reiterated the connection between the Israeli-Palestinian
conflict and the spread of Iranian influence, and pointed out
the dangers both of confrontation and detente with Iran. On
political reform, Awadallah indicated that Jordan is still
looking for an effective counterweight to Islamist influence.
PM Dahabi said that discussions about un-pegging the dinar
from the dollar were premature, but the Central Bank was
diversifying its reserves. End Summary.

Iran
----

2. (C) In a meeting with Royal Court Chief Bassem Awadallah,
the staffdel heard an expansion of the views on Iran
expressed by the King the previous day on the subject of Iran
(Ref A). Awadallah asserted that the Israeli-Palestinian
conflict is the "central issue" in the region, and has a
direct impact on all the other simmering conflicts in which
Iran now has a stake. Pointing out that "half of Al-Qaeda
statements have to do with Palestine" and that Saddam
Hussein's last words were focused on the issue, Awadallah
said that Iran will continue to milk the issue for political
gains on the Arab street.

3. (S/NF) Addressing the question of conflict or engagement
with Iran, Awadallah expressed wariness of both. Saying that
Arab moderates are "frightened" by the prospect of military
action against Iran, Awadallah raised the fear that Iran will
use its proxies against Israel and the Gulf states,
particularly Bahrain, in the event of confrontation. "Iran
will portray this war as the liberation of Jerusalem, and
people aren't going to be unhappy. We would end up paying
the price with our street," Awadallah remarked. On the other
hand, a "de facto understanding" between the U.S. and Iran,
especially in the absence of coordination with its Arab
allies, would be equally worrying. "People here are obsessed
with history," he noted. They fear that backroom
negotiations would lead to "a new Sykes-Picot agreement which
would carve up the region into spheres of influence" and
empower Iran to talk about the Palestinian issue. "We don't
want Iran to hijack the Palestinian issue because of American
engagement," Awadallah cautioned. "Compromise could very
well come at our expense."

Political Reform
----------------

4. (C) Transitioning to internal politics, Awadallah
outlined the challenges Jordan faces in creating a more open
political system while maintaining the security that the
country has so far enjoyed. He reminded the staffdel that
until 1989, the Islamic Action Front (IAF) "had a monopoly on
the political scene." When parliaments were re-instituted
after Jordan's disengagement from the West Bank, the
"liberal" parties had to start from scratch, while the
Islamists simply pushed off from their previous dominant
position. "What we need now is a level playing field,"
Awadallah asserted. The IAF has the advantage of its
presence in the religious sphere - "the mosque is more
important than media outlets. Any message from the mosque is
very effective."

5. (C) Discussing the political parties law which will go
into effect in April, Awadallah said, "I'm not comfortable
with what I see." The IAF still has a strong grip on the
youth and has "penetrated the Palestinian refugee camps",
while Jordan's other parties remain "fragmented and
unrecognized" in spite of high-level efforts to unite them
under a moderate, pro-government agenda (Ref B, C).
Awadallah hoped that the moderate, liberal parties would
"force themselves onto the political scene," but saw little
evidence of their doing so. Unfortunately, past efforts at
unifying the liberal parties devolved into tribal contests,
in which parties were formed for the purposes of "personal
aggrandizement at best." Comment: This is a backhanded swipe
at xxxxxxxxxxxx. End Comment.
Awadallah conceded that the political elite in Jordan often

AMMAN 00000872 002.2 OF 002


act to protect the status quo rather than following the
King's lead when it comes to political reform. "The
political will is there at the level of the King. 'We' at
the political level need to work on reform in our own areas,"
he commented.

The Dollar-Dinar Peg and the Economy
------------------------------------

6. (SBU) Awadallah insisted that Jordan has come a long way
in its economic development since King Abdullah took the
throne, but indicated that the situation still poses many
challenges. With an ever-expanding population, Awadallah
said that Jordan must create around 60,000 new jobs per year
just to maintain its current unemployment rate, which ranges
from an official thirteen percent to an unofficial thirty
percent in some rural areas. Expanding employment
opportunity to keep up with demand will require investment
from the public and private sectors. Awadallah noted that
aid money is primarily being directed towards education,
which will ultimately allow Jordan to expand and diversify
its economy, making it less susceptible to external shocks
such as rises in the price of oil.

7. (C) In a separate meeting on March 17, Prime Minister
Nader Dahabi told the staffdel that his economic team met on
Saturday to review the dollar-dinar peg. They concluded that
abandoning the dollar-dinar peg was "not in our interest at
this time," but did agree to start hedging a little more.
The Central Bank was instructed to increase its holdings of
Euros and gold. Dahabi said that de-pegging would increase
the value of debt owed by the state, and indicated that
seventy percent of Jordan,s imports are denominated in
dollars at any rate. He cited the example of Kuwait, saying
that the restructuring of its dollar peg helped to control
inflation in the short term, but had long term consequences
that Jordan would find unpalatable. Dahabi said that
Jordan,s financial community is against abandoning the
dollar peg for now; the Central Bank conducted a survey which
found that most banks and businesses believed that the state
should stick to its current exchange rate regime. Even so,
Dahabi said that the shadow of the dinar,s devaluation in
1989 still looms large - it is not an experience that anyone
is looking to repeat.
HALE

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